Perpetual Option - XPO

AAA

DEFINITION of 'Perpetual Option - XPO'

A non-standard financial option with no fixed maturity and no exercise limit. While the life of a standard option can vary from a few days to several years, a perpetual option (XPO) can be exercised at any time. Perpetual options are considered an American option; European options can be exercised only on the option's maturity date.

Also referred to as "non-expiring options" or "expirationless options."

INVESTOPEDIA EXPLAINS 'Perpetual Option - XPO'

For investors, perpetual options represent the highest ratio of possible risk/reward payoff compared to existing financial products. Perpetual options are viewed as "plain vanilla" options. For many investors they represent an advantage over other instruments (where dividends and/or voting rights are not a high priority) because the strike price on a perpetual option enables the holder to choose the buy or sell price point instead of having to select a singular stock price. In addition, XPOs can be preferable to standard options because they eliminate the expiration risk.

RELATED TERMS
  1. European Option

    An option that can only be exercised at the end of its life, ...
  2. American Option

    An option that can be exercised anytime during its life. American ...
  3. Risk-Return Tradeoff

    The principle that potential return rises with an increase in ...
  4. Risk

    The chance that an investment's actual return will be different ...
  5. Plain Vanilla

    The most basic or standard version of a financial instrument, ...
  6. Strike Width

    The difference between the strike price of an option and the ...
RELATED FAQS
  1. What risks should I consider taking a short put position?

    The risks to consider before taking a short put position are the odds of sustained weakness in the asset price and a spike ... Read Full Answer >>
  2. What happens if a software glitch fails to execute the strike price I set?

    If you've ever suffered the frustrating experience of having an order not filled or had a strike price fail to execute because ... Read Full Answer >>
  3. In what market situations might a short put be a profitable trade?

    Short puts would be a profitable trade in low-volatility bull markets or range-bound markets. Selling puts is a strategy ... Read Full Answer >>
  4. What is the relationship between implied volatility and the volatility skew?

    The volatility skew refers to the shape of implied volatilities for options graphed across the range of strike prices for ... Read Full Answer >>
  5. How is a short call used in a collar option strategy?

    An investor uses a short call sold above the current market price to collect a premium in a collar option strategy. The core ... Read Full Answer >>
  6. Why should investors consider the fully diluted share amount?

    Investors should consider a company's fully diluted share amount before purchasing the company's stock, because it could ... Read Full Answer >>
Related Articles
  1. Options & Futures

    How To Avoid Closing Options Below Intrinsic Value

    To get the best return possible on your options trading, it is important to understand how options work and the markets in which they trade.
  2. Options & Futures

    Dividends, Interest Rates And Their Effect On Stock Options

    Learn how analyzing these variables are crucial to knowing when to exercise early.
  3. Options & Futures

    Using Options Tools To Trade Foreign-Exchange Spot

    Find out how delta, gamma, risk reversals and volatility can all help predict movements in the cash market.
  4. Options & Futures

    Do Option Sellers Have a Trading Edge?

    Take a look at a study that discovered that three out of every four options expired worthless.
  5. Options & Futures

    4 Reasons To Hold Onto An Option

    There are times when an investor shouldn't exercise an option. Find out when to hold and when to fold.
  6. Options & Futures

    Options Hazards That Can Bruise Your Portfolio

    Learn the top three risks and how they can affect you on either side of an options trade.
  7. Options & Futures

    Understanding Option Pricing

    Take advantage of stock movements by getting to know these derivatives.
  8. Investing Basics

    What is a Greenshoe Option?

    A greenshoe option is a provision in an underwriting agreement that allows the underwriter to buy up to 15% of the shares in an IPO at the offer price.
  9. Investing Basics

    What Does a Clearing House Do?

    A clearing house is a third-party agency or separate entity that acts as a go-between for buyers and sellers in financial markets.
  10. Options & Futures

    How The New NYSE Binary Options Work

    The New York Stock Exchange has launched its own version of binary options called Binary Return Derivatives Options or ByRDs.

You May Also Like

Hot Definitions
  1. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  2. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  3. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  4. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  5. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!